CHENNAI, TAMIL NADU, 11/11/2015: Car and a two wheeler met with an accident at Kunnurkadu near Kovalam, ECR near Chennai on November 11, 2015.Photo: M. Karunakaran
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Increase in compensation and other procedural issues pushing up costs for insurers

The steep hike in premium rates of motor third-party insurance in some segments proposed by the regulator will help mitigate losses, according to general insurers.

Last week, the Insurance Regulatory and Development Authority of India (IRDAI) proposed an annual hike in motor third-party insurance in the 15-50 per cent range in different categories of private and commercial vehicles.

“The good part is that this is done by the regulator, which follows a well-defined formula to calculate the need for a hike in premium.

“There has been a moderate increase in the last three years and the proposed hike is slightly higher in comparison,” Sanjay Datta, Chief of Underwriting Claims and Reinsurance, ICICI Lombard General Insurance, told BusinessLine on Tuesday.

The move will help the motor insurance segment, where costs have been rising due to increase in compensation and other procedural issues, Datta added.

According to S Thirunavukarasu, Country Head-Underwriting and Claim (Motor), Royal Sundaram General Insurance Co, the proposed hike is in line with the overall claims expectation of the industry.

The draft proposal to revise the third-party premium rates in various segments, especially the medium and heavy goods carrying vehicles where the proposed increase is 50 per cent, if implemented, will help mitigate insurers’ losses to a “great” extent, he added. While an increase of about 50 per cent in rates has been proposed for private cars of over 1,000 cc capacity, no increase has been planned for cars of less than 1,000 cc.

Similar is the case for taxis of less than 1,500 cc.

“We feel that at least a 25 per cent increase should have been proposed for this segment as majority of cars in the Indian market, including taxis, fall under this category and where the frequency of claims is much higher,” Thirunavukarasu said.

According to Puneet Sahni, Head – Product Development, SBI General Insurance, the proposed increase is not 50 per cent across segments.

For certain categories of vehicles, such as private cars of up to 1,000 cc, goods carrying vehicles up to 7.5 tonnes capacity, and buses exceeding seating capacity of 17, there is either a marginal increase or no increase in third-party premium. For taxis up to six passengers, there is no increase in third-party premium.

“This is not the highest ever hike proposed by the regulator. The initial increase in third-party premium, just after dismantling of the TP pool, was proposed to be higher than 50 per cent in certain categories,” he said.

Impact

For four-wheelers above 1,000 cc, the proposed hike in premium is 50 per cent. The current composition of third-party premium out of the total premium is around 30 per cent. In such a situation, the overall premium may increase by 15 per cent for four-wheelers.

For two-wheelers exceeding 150 cc, the proposed hike is to the tune of 50 per cent which, in turn, may increase the total cost of comprehensive insurance by 20-25 per cent, since the composition of third-party premium in total premium is around 50 per cent.

The proposed increase, if notified in the current form, will come into effect from April 1, 2017.

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Published on
March 07, 2017

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